Estee Lauder 2002 Annual Report Download - page 64

THEEST{E LAUDER COMPANIES INC.63
The restructuring charge was recorded in other accrued
liabilities or, where applicable, as a reduction of related
assets. During fiscal 2002, $9.3 million related to this
restructuring was paid. As of June 30, 2002, the restruc-
turing accrual balance was $54.1 million and the Com-
pany expects to settle a majority of the remaining
obligations by the end of fiscal 2003 with certain addi-
tional payments made ratably through fiscal 2006.
During the fourth quarter of fiscal 2001, the Company
recorded one-time charges for restructuring and other
non-recurring expenses related to repositioning certain
businesses as part of the Company’s ongoing efforts to
drive long-term growth and increase profitability. The
restructuring and other non-recurring expenses focused
on four areas: product fixtures for the jane brand; in-store
“tommy’s shops”; information systems and other assets;
and global brand reorganization. The Company com-
mitted to a defined plan of action, which resulted in
an aggregate pre-tax charge of $63.0 million, of which
$35.9 million is cash related. On an after-tax basis, the
aggregate charge was $40.3 million, equal to $.17 per
diluted share.
Specifically, the charge included the following:
•jane. jane switched from its traditional wall displays to a
carded program. The charge included a $16.1 million
write-down of existing jane product fixtures and the
return of uncarded product from virtually all of the
13,000 distribution outlets in the United States.
•“tommy’s shops.” The Company restructured the
in-store “tommy’s shops” to focus on the most pro-
ductive locations and decided to close certain shops
that underperformed relative to expectations. As a
result, the Company recorded a $6.3 million provision
for the closing of 86 under-performing in-store
“tommy’s shops,” located in the United States, and for
related product returns.
• Information systems and other assets. In response to
changing technology and the Company’s new strategic
direction, the charge included a $16.2 million provision
for costs associated with the reevaluation of supply
chain systems that the Company no longer utilized and
with the elimination of unproductive assets related to
the change to standard financial systems.
• Global brand reorganization. The Company recorded
$20.8 million related to benefits and severance pack-
ages for 75 management employees who were affected
by the reconfiguration to a global brand structure and
another $3.6 million related to infrastructure costs.
• Gl obalization of Organization. The Company continued
to implement its previously announced transition to a
global brand structure designed to streamline the deci-
sion making process and increase innovation and
speed-to-market. The next phase of this transition
entailed eliminating duplicate functions and responsibil-
ities, which resulted in charges for benefits and sever-
ance for 122 employees. The Company recorded a
charge of $27.1 million associated with these efforts.
• Distribution. The Company evaluated areas of distribu-
tion relative to its financial targets and will focus its
resources on the most productive sales channels and
markets. As a result, the Company closed its operations
in Argentina and the remaining customers will be serv-
iced by the Company’s Chilean affiliate. The Company is
also closing all remaining in-store “tommy’s shops”
and other select points of distribution. The Company
recorded a $22.6 million provision related to these
actions, which included benefits and severance for
85 employees.
Following is a summary of the charges as recorded in the consolidated statement of earnings for fiscal 2002:
Net Sales Cost of Sales Operating Expenses Total
(In millions)
Internet $ — $ — $ 44.0 $ 44.0
Supply Chain — — 23.7 23.7
Globalization of Organization — — 27.1 27.1
Distribution 6.2 0.8 15.6 22.6
Total charge $6.2 $0.8 $110.4 117.4
Tax effect (40.5)
Net charge $ 76.9
Restructuring